Investing in stock markets

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<ul><li>1.Investing In Stock Markets</li></ul> <p>2. Why Invest in Stock Markets </p> <ul><li>Historically, on a long term horizon equities have given higher return than other asset classes </li></ul> <p>3. Source: 4. Basics of the Stock Market</p> <ul><li>Stocks : It is a term used to symbolize an investors ownership of a company. </li></ul> <ul><li>Stock Market :It is the place where buying &amp; selling of these shares happen. (also known as stock Exchanges) </li></ul> <ul><li><ul><li><ul><li><ul><li><ul><li>(Issues in Market Design ) </li></ul></li></ul></li></ul></li></ul></li></ul> <ul><li>Primary:security markets where new issues of securities are initially sold. </li></ul> <ul><li>Secondary:A market where securities are resold. E.g. the NSE. </li></ul> <p>5. Basics ofthe StockMarket</p> <ul><li>Face Value</li></ul> <ul><li>Market Value</li></ul> <ul><li>Dividend</li></ul> <ul><li>Bonus Shares</li></ul> <ul><li>Market Capitalization :</li></ul> <ul><li><ul><li><ul><li><ul><li><ul><li>No.of outstanding sharesXCurrent Market Price </li></ul></li></ul></li></ul></li></ul></li></ul> <p>6. </p> <ul><li>Small Cap : Market Capitalization less than 75 crores </li></ul> <ul><li><ul><li><ul><li><ul><li><ul><li>(High Risk high returns ) </li></ul></li></ul></li></ul></li></ul></li></ul> <ul><li>Mid Cap : Market Capitalization between 75 to 7500 crores </li></ul> <ul><li><ul><li><ul><li><ul><li><ul><li>(Medium Risk Medium Returns) </li></ul></li></ul></li></ul></li></ul></li></ul> <ul><li>Large Cap : Market Capitalization more than 7500 Crores </li></ul> <ul><li><ul><li><ul><li><ul><li><ul><li>(Low Risk Low returns ) </li></ul></li></ul></li></ul></li></ul></li></ul> <p>Classification of Shares 7. The Trading Process </p> <ul><li>The elements of the trading process can be</li></ul> <ul><li>divided into 4 components: </li></ul> <ul><li>Information </li></ul> <ul><li>Order routing </li></ul> <ul><li>Execution </li></ul> <ul><li>Clearing </li></ul> <p>8. Some Issues in Stock market design </p> <ul><li>The way the market is designed will affect</li></ul> <ul><li>what type of traders participate, the overall</li></ul> <ul><li>trading process and the behaviour of prices. </li></ul> <ul><li>2 factors to consider: </li></ul> <ul><li>Transparency </li></ul> <ul><li>Automation </li></ul> <p>9. Information </p> <ul><li>Bid Price </li></ul> <ul><li>Ask Price </li></ul> <ul><li>Volume </li></ul> <ul><li>Percentage Change </li></ul> <ul><li>Day High / Day Low </li></ul> <p>10. Types of Orders </p> <ul><li>Market Orders : </li></ul> <ul><li>Most common type of order placed by an investor </li></ul> <ul><li>on the NSE. It is an order to buy or sell at the best price currently </li></ul> <ul><li>available.</li></ul> <ul><li>Limit Orders : </li></ul> <ul><li>This is an order to buy/sell at a maximum/minimum </li></ul> <ul><li>price. These orders control the price paid or received, but investor </li></ul> <ul><li>has no way of knowing when the order will be filled. </li></ul> <p>11. </p> <ul><li>Delivery orders :Trades for which the investor takes or gives delivery of shares depending upon the trade he has entered into.</li></ul> <ul><li>IntraDay Orders : Trades which have to be squared off on the very same day </li></ul> <p>Types of Orders 12. Market Participants </p> <ul><li>Regulators </li></ul> <ul><li>Exchanges </li></ul> <ul><li>Brokers </li></ul> <ul><li>Depository Participants </li></ul> <ul><li>Investors / Clients </li></ul> <p>13. Online Trading </p> <ul><li>Aims at converting the Open Outcry system of trading to a screen based trading system. </li></ul> <p>14. Now what is Online Trading </p> <ul><li>Buying&amp; Selling of stocks, options, bonds, and other financial instruments using online brokers web sites and systems </li></ul> <ul><li>Management guru Tom Peters, "distance is dead".</li></ul> <p>15. How is it Done </p> <ul><li>Online trading can be done through </li></ul> <ul><li><ul><li><ul><li>A Trading Platform ( Software ) </li></ul></li></ul></li></ul> <ul><li><ul><li><ul><li>Brokers Website</li></ul></li></ul></li></ul> <p>16. Why trade online </p> <ul><li>In a market where every second counts, you have to constantly be up to speed.</li></ul> <p>17. OBJECTIVES OF ON LINE TRADING </p> <ul><li>Leads to transparent deals in the market. </li></ul> <ul><li>Improves liquidity in the market </li></ul> <ul><li>Increases the market depth through quote-continuity </li></ul> <ul><li>Instantaneous dissemination of information through channels. </li></ul> <ul><li>Structured MIS reports for analysis. </li></ul> <p>18. Service Providers in India </p> <ul><li>Brokerage Houses </li></ul> <ul><li><ul><li><ul><li>Sharekhan </li></ul></li></ul></li></ul> <ul><li><ul><li><ul><li> </li></ul></li></ul></li></ul> <ul><li><ul><li><ul><li>Indiabulls </li></ul></li></ul></li></ul> <ul><li><ul><li><ul><li>Angel Broking </li></ul></li></ul></li></ul> <ul><li>Financial institutions </li></ul> <ul><li><ul><li><ul><li>ICICIDirect </li></ul></li></ul></li></ul> <ul><li><ul><li><ul><li>HDFC Securities </li></ul></li></ul></li></ul> <ul><li><ul><li><ul><li>IDBI Capital </li></ul></li></ul></li></ul> <ul><li><ul><li><ul><li>Kotak Securities </li></ul></li></ul></li></ul> <p>19. Getting Started 20. Starting up </p> <ul><li>Evaluate the Brokers </li></ul> <ul><li>Select the best broker </li></ul> <ul><li>Open a Demat A/c&amp;Trading A/c with the broker. </li></ul> <ul><li>Open a savings Bank A/c which is linked with the Broker </li></ul> <p>21. DEMAT ACCOUNT </p> <ul><li>Dematerialized account.</li></ul> <ul><li>Approach the DP . </li></ul> <ul><li>Must for trading and investing . </li></ul> <p>22. Scenario 1 3 Entities for D / T / S ( T + 2 ) Shares Come to your demat A/c 9 thJanShares come in your trading A/c 5 thJanMoney comes to your account 3 rdJan Give cheque to the broker 1 stJan Particulars Date 23. Scenario 2 2 Entities D/T S(nl) ( T + 2 ) Shares come in your trading A/c (same day transferred to demat A/c) 5 thJanMoney comes to your account 3 rdJan Give cheque to the broker 1 stJan Particulars Date 24. Scenario 3 2 Entities D/T S (l) Shares come in your trading A/c (same day transferred to demat A/c) You may sell the shares off on the same day 3 rdJan Give an online instruction money comes in your trading A/c, You purchase the share that day itself. 1 stJan Particulars Date 25. Investor HDFC Bank (S avings a/c ) SHAREKHAN ( Demat a/c ) PutsBUY order SHAREKHAN Savings accountBalance checked&amp;blocked ContractnoteissentthroughE-mail Buyorder executed&amp;Savingsa/cdebited Shares creditedonT+2 day SHAREKHAN (Tradinga/c ) 26. YOUR SAVINGS A/C TRADING A/C WITH BROKER YOUR DP A/C MONEY COMES IN PURCHASE SHARES SHARES TRANSFERRED INTO DEMAT A/C 27. Documents Required </p> <ul><li>Photo ID Proof- Election Card , Driving Licence, PAN </li></ul> <ul><li>Residence Proof Ration Card, MTNL bill, Electricity bill </li></ul> <ul><li>Bank A/c proof (Statement) </li></ul> <ul><li>PAN Card - MUST </li></ul> <p>28. Comparative analysis of broking firms 29. Comparative Analysis of different Broking Firms </p> <ul><li>Following Broking Firms are taken for the purpose of comparative analysis :- </li></ul> <ul><li>Kotak Securities </li></ul> <ul><li>Sharekhan</li></ul> <ul><li>IDBI paisa builder.</li></ul> <ul><li>India Bulls </li></ul> <ul><li>HDFC Securities </li></ul> <p>30. Parameters Used 100 Total 20 Customer service 20 Range of services offered (BSE, NSE, F&amp;O, Commodities, PMS Etc.) 30 Brokerage 30 Portal Weightage given Parameters Used 31. 1st Parameter :- Quality of Portal USER FRIENDLINESS 24 80 2 nd HDFC Securities* 6 20 5 th India Bulls 30 100 1 st IDBI paisa builder.24 80 2 nd Sharekhan 12 40 4 th Kotak Securities Total Weighted score (Scores * 30%) Scores RankingName of the Firm 32. 2ndParameter :- Brokerage Charged 24 80 2 rd HDFC Securities 30 100 1 st India Bulls 24 80 2 nd IDBI paisa builder.24 80 2 nd Sharekhan18 60 3 rd Kotak Securities Total Weighted score (Scores * 30%) Scores RankingName of the Firm 33. 3rdParameter :- Range of Services Offered 20 100 1st HDFC Securities 08 40 4 th India Bulls 12 60 3 rd IDBI paisa builder.16 80 2 nd Sharekhan 12 60 3 rd Kotak Securities Total Weighted score (Scores * 20%) Scores RankingName of the Firm 34. 4thParameter :- Customer Services 16 80 1 st HDFC Securities 12 60 3 rd India Bulls 08 40 4 th IDBI paisa builder.20 100 1 st Sharekhan 16 80 2 nd Kotak Securities Total Weighted score (Scores * 20%) Scores RankingName of the Firm 35. COMPARISON OF TOTAL WEIGHTED SCORE OF ALL THE FIRMS 36. 1 st 84 16 20 24 24 HDFC Securities 4 th 56 12 08 30 6 India Bulls 2 nd 74 08 12 24 30 IDBI paisa builder.1 st 84 2016 24 24 Sharekhan3 rd 58 16 12 18 12 Kotak Securities Relative Ranking Total Weighted score Weighted Score on Customer Services Weighted Score on Range of Services Weighted Score on Brokerage Weighted Score on Portal Name of the firm 37. What is a Depository? </p> <ul><li> ..a facility for holding securities which enables securities transactions to be processed by book entry. </li></ul> <ul><li>Physical securities may be immobilised by the depository or securities may be dematerialised (so that they exist only as electronic records). </li></ul> <p>38. Depositories in India </p> <ul><li>NSDL </li></ul> <ul><li>Industrial Development Bank of India </li></ul> <ul><li>Unit Trust of India </li></ul> <ul><li>The National Stock Exchange of India </li></ul> <ul><li>State Bank of India </li></ul> <ul><li>Global Trust Bank Limited </li></ul> <ul><li>Citibank NA </li></ul> <ul><li>Standard Chartered Bank </li></ul> <ul><li>HDFC Bank Limited </li></ul> <ul><li>The Hong Kong and Shanghai Banking Corporation Limited </li></ul> <ul><li>Deutsche Bank </li></ul> <ul><li>Dena Bank </li></ul> <ul><li>Canara Bank </li></ul> <ul><li>CDSL </li></ul> <ul><li>The Stock Exchange Mumbai (BSE)</li></ul> <ul><li>Bank of India </li></ul> <ul><li>Bank of Baroda </li></ul> <ul><li>State Bank of India </li></ul> <ul><li>HDFC Bank </li></ul> <ul><li>Standard Chartered Bank </li></ul> <ul><li>Global Trust Bank </li></ul> <ul><li>Union Bank of India </li></ul> <ul><li>Centurion Bank </li></ul> <ul><li>Bank of Maharashtra </li></ul> <ul><li>The Calcutta Stock Exchange Association Ltd. </li></ul> <p>39. REGULATOR OF THE MARKET.. </p> <ul><li>SEBI :- </li></ul> <ul><li>Protecting the interest of the investors. </li></ul> <ul><li>Promoting and developing securities</li></ul> <ul><li>market. </li></ul> <ul><li>regulation of securities market </li></ul> <p>40. Exchanges </p> <ul><li>28 exchanges in India </li></ul> <ul><li>Major exchanges are</li></ul> <ul><li>NSE </li></ul> <ul><li>BSE </li></ul> <p>41. Welcome to a NEW INDIA Real GDP Growth 6.5 to 7.5% Inflation estimates at ~ 5% Nominal GDP Growth at 12.5% Corporate earnings growth at 15 18% India An Investment Opportunity 42. </p> <ul><li> Capital expenditure To grow </li></ul> <ul><li>IIP(Industrial Index of Production) Growth to pick up again, will need capacity expansion.. </li></ul> <ul><li>Strong order book log improves revenue visibility </li></ul> <ul><li> Consumption To get stimuli </li></ul> <ul><li>Per capita income has grown by 7% CAGR over the past </li></ul> <ul><li>decade; positive demographics </li></ul> <ul><li>Rising aspiration, availability and affordability of Indians </li></ul> <ul><li> Competitiveness Adds business confidence </li></ul> <ul><li>Compelling and sustainable Cost and Skill advantage </li></ul> <ul><li>Brand India gaining more acceptability globally </li></ul> <ul><li> Continuation of structural reforms </li></ul> <ul><li>VAT a good beginning; abolition of LTCG( Long Term Capital Gains ) in equity </li></ul> <ul><li>Thrust on infrastructure creation </li></ul> <ul><li>Political will to push reforms despite resistance </li></ul> <p>Fundamentals: 4 C Effect Welcome to a NEW INDIA 43. Liquidity: More to come Indian households are under-invested in equity, thanksto high interest rate regime in the past Cumulative FII holdings in India: ~ 40bnUSD againsttotal FII stocks globally: ~ 35trUSD. India still not ratedas an investment grade More domestic institutional funds to come Insurance,Pension Funds, AMCs etc Long term global investors like pension funds andinstitutional trusts also have started participating in Opportunity India Welcome to a NEW INDIA India An Investment Opportunity 44. India has come a long way from near bankruptcy in early 90s to beingone of the fastest growing economy in the world 64% of Indias GDP is consumption-led; providing sustainability toeconomic growth Average EPS growth rate of Sensex companies over the last 5 years:18% CAGR Healthy balance sheet and operating efficiency improved capacityutilisation, cash up, debt / equity down, growing profitability Welcome to a NEW INDIA India An Investment Opportunity Valuation: Supported by Earnings 45. </p> <ul><li><ul><li>GDP growth to remain strong </li></ul></li></ul> <ul><li><ul><li>Changing lifestyle to boost consumption </li></ul></li></ul> <ul><li><ul><li>Capital spend to lead to increased demand for capital goods</li></ul></li></ul> <ul><li><ul><li>Continuation of structural reforms </li></ul></li></ul> <ul><li><ul><li>FDI to be more relaxed </li></ul></li></ul> <ul><li><ul><li>Market cap / GDP ratio still low </li></ul></li></ul> <ul><li><ul><li>Liquidity to continue </li></ul></li></ul> <ul><li><ul><li>Valuations Fair but not stretched </li></ul></li></ul> <p>Welcome to a NEW INDIA Way Ahead India An Investment Opportunity 46. </p> <ul><li>Concerns </li></ul> <ul><li>Expectation of high Interest Rates </li></ul> <ul><li>Expectation of high Oil Prices </li></ul> <ul><li>High Fiscal and Current Account Deficits </li></ul> <ul><li>Geopolitical Tensions </li></ul> <ul><li>Possibility of Liquidity Withdrawals </li></ul> <ul><li> Reduction in leveraged positions </li></ul> <ul><li> Flight to non-risky assets </li></ul> <ul><li>Huge Volatility A Key Deterrent </li></ul> <p>Case for Investing 47. </p> <ul><li>Should we invest in equity? </li></ul> <ul><li>If in-the market , possibility of capital loss!!! </li></ul> <ul><li>If out-of the market , possibility of opportunity loss!!! </li></ul> <ul><li><ul><li><ul><li><ul><li><ul><li>Capital Loss </li></ul></li></ul></li></ul></li></ul></li></ul> <ul><li><ul><li><ul><li><ul><li><ul><li>v/s </li></ul></li></ul></li></ul></li></ul></li></ul> <ul><li><ul><li><ul><li><ul><li>Opportunity Loss </li></ul></li></ul></li></ul></li></ul> <p>Dilemma 48. HOW MUCH SHOULD YOU EARN </p> <ul><li>TO FIGHT INFLATION- 6% </li></ul> <ul><li>BANK INTEREST 7% </li></ul> <ul><li>Hence, you have to earn 13% just to stay afloat. </li></ul> <ul><li>Your real gain is the extra that you earn above 13%. Equities gives you atleast 18 25% on a conservative estimate.( Moneylender calculation ) </li></ul> <p>49. Must be DRIVEN BY </p> <ul><li>Your Financial Goals </li></ul> <ul><li>&amp; </li></ul> <ul><li>Your Risk Appetite </li></ul> <ul><li>Hence, Time, Rate of Return &amp; Risk </li></ul> <p>ASSET ALLOCATION DECISION 50. Success of any Investment </p> <ul><li>Longevity </li></ul> <ul><li>Growth </li></ul> <ul><li>Quality of Growth </li></ul> <p>51. i.e. : Which Stocks ? </p> <ul><li>External Opportunities </li></ul> <ul><li>Sustainable Competitive Ability </li></ul> <ul><li>Scalability and Operating Leverage </li></ul> <ul><li>Management Quality and Capital efficiency </li></ul> <ul><li>Price and Value Divergence( What we buy and at what price we buy ? ) </li></ul> <p>What to Invest In ? 52. What options do we have today ? </p> <ul><li>Investment with Limited Understanding and many uncertainties. </li></ul> <ul><li>So, </li></ul> <ul><li>Our entry pricing must give us a margin of safety </li></ul> <ul><li>Reduce LOSS and EXTENT OF LOSS </li></ul> <ul><li>LONG TERM rather than SHORT TERM </li></ul> <p>53. WHY INDIA ??? </p> <ul><li>INDIA is a confluence of CAPITAL EXPENDITURE and CONSUMPTION CYCLE in INDIA is the highest. </li></ul> <ul><li>One of the several booming sectors therefore are: FMCG, Power, Construction and Engineering sector (infra). </li></ul> <p>54. When INVESTING </p> <ul><li>Place greater emphasis on Superior Business Models rather than sectors for investing decisions. </li></ul> <ul><li>An Entrepreneur makes an invaluable difference to the investment returns. </li></ul> <ul><li>Eg.: INFOSYS, ADITYA BIRLA NUVO,BIOCON, BHEL </li></ul> <ul><li>Recognise the passion and the skills of the entrepreneur and then believe in the VISION and BELIEFS of the entrepreneur, and above all VALIDATE THE RISKS that may or may not have been perceived by the entrepreneur. </li></ul> <ul><li>Understand the broad drivers of PROFIT &amp; GROWTH. </li></ul> <p>55. Drivers for Indian Equities </p> <ul><li>Earnings Momentum </li></ul> <ul><li>Re-Rating Potential </li></ul> <ul><li>Lack of Investment alternatives for Indias growing Savings </li></ul> <ul><li>Larger Aspirations </li></ul> <ul><li>Rising Risk Appetite </li></ul> <ul><li>Equity Participation by Indian &amp; Foreign Investors is still at a fairly nascent stage. </li></ul> <ul><li>Equity Valuations are still far away from their Peak Valuations. </li></ul> <p>56. To Summarise </p> <ul><li>Superior Investment Returns are from a combination of</li></ul> <ul><li>WISDOM and PATIENCE </li></ul> <ul><li>rather than</li></ul> <ul><li>INTELLECT &amp; EXPECTATIONSofQUICK &amp; HIGH RETURNS . </li></ul> <p>57. USUAL BUY Strategies </p> <ul><li>INTRA DAY Buy in the morning when the market opens or during the day BUT selling it before the close of trading hoursON THE SAME DAY</li></ul> <ul><li>( 9.55a.m to 3.30p.m). </li></ul> <ul><li>Two options (1)BUY- SELL ----Buy at LCL &amp; Sell at UCL </li></ul> <ul><li>(2)SHORTSELL SELL at a High Price in anticipation of a drop in </li></ul> <ul><li>price as the day goes along.</li></ul> <ul><li>i.e.: Stock Opens at Higher Level SHORTSELL and then </li></ul> <ul><li>BUY at LOWER LEVELS by the AFTERNOON. </li></ul> <ul><li>INFORMATION With YOU from a RELIABLE Source. </li></ul> <ul><li>NEWS tickers on NEWS Channels, investment bankers, brokers. </li></ul> <ul><li>ON DELIVERY BASIS : </li></ul> <ul><li>Short term</li></ul> <ul><li>Long term </li></ul> <p>58. For Income Tax Purposes </p> <ul><li>On Long term gains NIL Tax </li></ul> <ul><li>On Short term gains 10% income tax </li></ul> <ul><li>On Day Trades gains The gains are added to your gross income and subjected to tax.( Treated as Business Income ) </li></ul> <p>59. There was a one hour interview on CNBC with Warren Buffet, the second richest man who has donated $31 billion to charity. Following are some very interesting aspects of his life 60. </p> <ul><li>He bought his first share at age 11 and he now regrets that he started too late!</li></ul> <ul><li><ul><li>Things were very cheap that timeEncourage your children to invest </li></ul></li></ul> <ul><li>He bought a small farm at age 14 with savings from delivering newspapers.</li></ul> <ul><li><ul><li>One could have bought many things with little savings </li></ul></li></ul> <ul><li><ul><li>Encourage your children to start some kind of business </li></ul></li></ul> <p>61. </p> <ul><li>He still lives in the same small 3-bedroom house in mid-town Omaha , that he bought after he got married 50 years ago. He says that he has everything he needs in that house. His house does not have a wall or a fence. </li></ul> <ul><li>Don't buy more than what you "really need" andencourage your children to do and think the same </li></ul> <p>62. </p> <ul><li>He drives his own car everywhere and does not have a driver or security people around him. </li></ul> <ul><li><ul><li>You are w